How is a Junior ISA different to a Child Trust Fund?
The Junior ISA is essentially intended a replacement for the Child Trust Fund, and the two savings platforms have many similarities. They also, however, have some rather large differences, and it’s important to know the difference between the two, especially if you have one child who already has a Child Trust Fund, and a second who will be eligible for a Junior ISA.
The biggest difference between the two savings schemes is that the government gave contributions to Child Trust Funds in the form of vouchers, but will not do the same for the Junior ISA.
For the eight years the Child Trust Fund was available, every baby born in the UK was sent a £250 voucher (reduced to £50 for last six months before the scheme was scrapped) which their parents were able to invest in a Child Trust Fund of their choice.
If the parents failed to invest the money within a year, a Child Trust Fund was set up automatically by the government. Some children also received a bonus £250 on their seventh birthday, depending on their parent’s financial circumstances.
The Junior ISA will feature no such government contributions, so Junior ISAs will not be set up for the child if their parents fail to act.
The Junior ISA will also have a higher annual limit than the Child Trust Fund, although the Child Trust Fund limit is expected to be increased to match the higher allowance offered by the Junior ISA. Parents will be able to invest £3,000 a year tax free into a Junior ISA, rather than the £1,200 a year allowed by the Child Trust Fund.
As with the Child Trust Fund, the Junior ISA will keep money locked in until the child’s 18th birthday, and will be available on both a cash and stocks and shares basis.
The Junior ISA is expected to be offered by many more providers than the Child Trust Fund, indicating that we are likely to see more competitive rates, with parents enjoying more choice.